Monday, May 26, 2008

Devil, Get Behind Me!

NOTE: This will be long and profane. You have been warned.

Man oh man!

Everything was just going along swimmingly until this past Thursday, 22 May. Days like that are the type that tell you to have a nice stiff drink (or 8, which is what I did the following night). If I didn't know better (and maybe I don't), I'd swear my "partners" are trying their best to ruin me financially. Its time to be done with this stupid real estate partnership once and for all.

What's led to this realization is the news that while we have been dithering over the direction of one of our 3 properties in Baltimore (and I have to admit to dithering myself, out of resignation and disinterest), ALL of the copper was stripped out of the house. All of it!! Pipes, electrical wiring, everything. So God knows how much it will take to rehab the property now, on top of the $2000 in work it needed previously to clean up after the Section 8 tenant that we planned (and may still need) to evict.

I'd say its easily worth $10,000 to me to be done with this group. The litany of fuck ups over the last 2 years is too great to list, but I'm going to try anyway. We overpaid for our first bloody property. The first one!! Bought at auction. I should have seen the pattern emerging from that purchase, because we continued to overpay for properties (and overbid) during what is now commonly accepted as the end of the real estate bubble.


Much of this I attribute to the founder, whose idea it was to assemble this group, not really leading. It did not help that each of the 5 members is very intelligent; that made managing the group like herding cats. Every conversation would devolve into a huge digression into topics that had nothing to do with the issue at hand. I swear, had I not attempted to keep things on track during most of our meetings, we'd have never gotten a damn thing done.

So the leader didn't, and still doesn't, lead. That's pretty bad. On top of that, he and one of the other members who was selected as the financial manager (CFO, treasurer, whatever name you'd like to use for the position) take the position that they don't want to enter into any negotiation which they won't win. This does not make a damn bit of sense to me, and one of the other partners is equally perplexed. (The fifth partner, relatively speaking, has been absentee, considering the amount of time he's been involved in various discussions. He had some personal issues going on, so it is understandable that his attention and focus were elsewhere, but it still should not be an excuse.)

Now, anyone out there who invests in real estate is probably reading the above paragraph and shaking their head. I know I didn't get it when I was told this. Yes, the president and treasurer of our investment company decided that they did not want to make an offer on any property which they weren't assured of winning. Almost by definition, in order to win every property you make an offer on, you would have to overpay. Which is exactly what we did, and this can be attested to by the excruciating loans we have on all 3 properties. Now, pretty consistently, every successful investor I have met in the last 3 years has stated that you never pay full price. Seems like a simple enough concept, right? Buy low, sell high, all that shit? Not to my partners. When I and the fourth partner (the one who basically agrees with me 100%) heard that, you could hear our eyeballs fall out of our heads and hit the floor. For the life of me, I don't get why these guys would want to win every offer when you're playing a numbers game. I even tried to explain this using the analogy of asking women out for dates; you're not going to get a "yes" every single time, which is why you have to ask a lot of women out. (Could the fact that every partner except me is married explain why they didn't get this analogy???)

If you win every offer, then you're paying too much. The point of negotiation is to find a price that BOTH parties can work with, not just the seller! Yet, the entire idea was repulsive to my partners, as if their very personalities were tied up in receiving a "yes" to their offers. Would a "no" have meant the end of the world? Apparently, it would have to them. These guys actually argued against making initial offers 50% - 60% less than the sale price. I challenge any experienced investor to explain that to position to me. I guess this proves that we were amateurs. Fuck me!

I think the best advice I ever heard about negotiation was that the final agreed upon price should piss off both parties. The buyer should be upset that they didn't get a lower price, while the seller should be pissed that they didn't sell for more.

Now, not only did we overpay on the properties we purchased, but we also somehow managed to not get them inspected well, even when our handyman, who did most of the repairs (and does good work) performed the evaluations!! In one case, we clearly got greedy when we heard the numbers. We were able to get a nice neg am loan which would cost about $200/month, and take in $850/month in rent, roughly. And like idiots, we consummated this deal even though, throughout the process, the wholesaler we dealt with was screwing up every detail. (Never mind that the amount of rent he was charging kept shifting like the ground under Sichuan province, declining steadily from about $950 to a final $850 by closing.)

This all came to a head at closing with the bogus ass title company we worked with (instead of using our regular title lawyer, who is a legend in the state and city). The wholesaler tells us to tell the seller that we're his partners. WTF? You mean you misrepresented yourself to the seller to get the deal done. So why the hell did we bother closing the transaction; we could and should have just walked away from the table right there. We didn't. The tenant we inherited turned out to be the absolute worst, and we came within a hair of having to evict her before she left of her own volition. (I imagine the hand delivered notice from the sheriff played a part in convincing her of the error of her ways.) Fuck me twice!

At least the house still has copper in it, for the time being. We'll see how long that lasts.


Pick a problem. We've experienced it. This is absolutely the worst investing experience of my life, and I say that as someone who has lost money in a variety of investments. But at least in those cases, all the decisions were mine. I accept full responsibility for them. Losing money because you were outvoted, however, just makes you feel dirty. I've left out some other cock-ups just because I don't feel like talking about this bullshit any longer. I'm sure by now you get the picture.

Back in September or October, I told my partners that I wanted out. Now, all of the partners who were still in agreement could have simply made arrangements to buy me and my other partner out. These guys decided that there was no point in having the partnership if all 5 partners weren't involved. I don't get what sense that is supposed to make. Clearly, at least 2 partners disagreed with the direction of the other 2 (possibly 3) and should go their own ways. Our separation would have had little impact on the remaining 3 partners. However, I think these guys became emotionally attached to this LLC. Obviously, they've not heard that you should never fall in love with any investment.

So here we are, 9 months or so later. One of the 3 houses is rented, so we're no longer hemorrhaging money; its more like profuse bleeding now. Another is going to take at least $10,000 worth of work to make it livable, and the third has a ton of leftover junk in it (and hopefully, copper). Jesus! The whole situation is so stupid I can't even begin to describe. The worst part, for me, isn't the loss of money (not yet anyway). Its that I've wasted this much time fucking around with this whole stupid situation. I definitely didn't want to lose the money, and I sure as hell plan not to lose any more. (I will buy my freedom if I have to, though.) However, in the past 2 years, we did very few deals, and all of the deals we did were fundamentally flawed. My partners refuse to listen to people who were more knowledgeable, and let their emotions guide their decisions. I could have lost money on my own! I didn't need their fucking help with that!!! Needless to say, I'll either be getting out of this arrangement, or if I am unable to do that, I'll only help re-capitalize if there is a favorable change of control. The existing structure flatly does not work.

Needless to say, I'll be speaking to my lawyer about the best way to extricate myself from this fuckery on Tuesday. This is the only blemish on my otherwise perfect life right now. It will soon be dealt with though. My sanity and peace of mind are worth quite a bit more than what I stand to pay (read: lose) to get out of this dumb-ass predicament.

I'll get back into real estate investing eventually. I will NOT invest with partners, however. Oh hell naw! I thought a bunch of young, intelligent, motivated Black men could pull off a successful, long horizon investment in a portfolio of real estate. That would appear to be next to impossible. I have no problem doing it by myself, at some point in the future.

Anyway, my next post(s) will have more inspiring and positive words. I just needed to get that off my chest. Thanks for listening.


No comments: